CATERPILLAR: Here's What The Global Economy Looks Like To Us Right Now (CAT)

Thursday

Jul 24, 2014 at 9:58 AM

Elena Holodny

Caterpillar just announced Q2 earnings that beat expectations, and announced a big stock buyback.

This could be good news for the whole economy.

As a global supplier of construction and mining equipment, Caterpillar is a bellwether of economic activity.

Every quarter, management provides an overview of the economy based on what they see.

Here are some of the key 2014 forecasts:

2.5% global economic growth
1.5% growth in developed countries
4.5% growth in developing countries
China's actions to slow credit growth contributed to sharp decline in building construction; building construction will remain weak for the rest of the year.
Further political conflicts could lower growth more than CAT is currently projecting

Here's the whole outlook:

2014 Outlook

Economic OutlookWe anticipate global economic growth in 2014 of about 2.5 percent, a modest improvement from 2013 levels. Most developed countries continue to pursue pro-growth policies, which should continue to benefit those economies. However, many developing countries have raised interest rates and in many of those countries rates are near the peak reached in 2011. At that time, higher rates slowed those economies, and similar problems are occurring now. Our economic outlook assumes that developed economies will continue to improve while developing economies will remain challenged.

We expect global economic growth in 2014 to be sufficient to increase demand for mined commodities and energy, keeping commodity prices at levels that support production. Mining company profits improved in 2013, and increased production and cost cutting should support further improvement. While most commodity prices should remain high enough to make investments attractive, we expect companies will continue to be cautious about resuming equipment investments, and we expect mining capital expenditures in 2014 to be below 2013.

Developed countries:

Economic policies in most developed countries should continue to support growth in 2014. Average short-term interest rates are at a record low and major central banks are expected to keep rates low for an extended period. We expect inflation will remain subdued, allowing central banks to focus less on austerity measures and more on promoting growth and employment. We expect economic growth in developed countries to exceed 1.5 percent in 2014. While this is lower than our previous outlook, due in part to weak first-quarter U.S. GDP growth, the underlying economic trends are improving and most sectors important to our business are performing well.

Developing countries:

High interest rates, as well as political and labor issues, are affecting growth in many developing countries. Inflation eased through the recovery but central banks started increasing interest rates in mid-2013, we believe either to defend their currencies or address inflation concerns. We believe interest rates are near a peak and will remain at current levels in 2014, which could further limit growth. We expect economic growth in developing countries will fall below 4.5 percent this year.

Risks:

Most economies are growing slower than before the financial crisis and the first two years of recovery. We believe this reflects decisions to remove policy stimulus before these economies had fully recovered. Developing countries recently tightened policies prematurely and signs of improving growth in developed countries may prompt similar premature policy tightening. These policy shifts may contribute to a more sluggish recovery and undermine business confidence.
China's actions to slow credit growth contributed to a sharp decline in building construction and some slowing of the overall economy in 2014. Policies have eased recently but we expect building construction will remain week the rest of the year.
Political conflicts and social unrest disrupted economic activity in several developing regions, in particular CIS, Africa and the Middle East. Further disruption is a risk to our economic outlook and could lower growth more than we are currently projecting.

See Also:

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